What should I know about the factoring contract?

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Many management techniques allow businesses to improve their cash flow. This is the case with factoring, a service offered by a financial company. The latter takes care of the company’s invoices and collects its debts. The factor is thus remunerated on commission, according to the amount of invoices or other. Through the factoring contract, the limited partner assigns part or even all of its receivables to the financial company of its choice, which frees up its working capital and allows it to develop its activities or to invest excess cash. .

The services defined by the factoring contract

With the factoring contract, the company and the factor agree on the formalities that will govern their collaboration. This document thus defines the appropriate legal framework for the management and financing of receivables, valid only for commercial inter-company credit transactions. A mention of subrogation must appear on each invoice assigned to the factor. Obviously, the company must inform its customers and for its part, the factoring company, like Bibby Factor, offers various financing solutions aimed at meeting the needs of the company.

The two parties also define the scope of the service provision. The two parties will agree on certain essential points including: the geographical area in which the factor is authorized to operate, the type of customer, receivables assumed or the frequency of transmission of invoices to the factoring company. It is also necessary to determine the financing quotas, the ceiling of outstanding amounts as well as the terms of payment of invoices.

It is also important to agree, in advance, the conditions of remuneration of the factor. The latter is generally remunerated by a factoring commission. Otherwise, both parties can agree on a financing commission. As for the ancillary costs, they consist of internet subscription costs, administration fees as well as financing waivers in the event of delay or litigation.

Signing of the factoring contract

Several important steps are required before signing the factoring contract. This is the case of the preliminary study which consists of customer workstation analysis. The financial and economic situation of the company will also be taken into account.

Following the preliminary formalities, the company and the factor can sign the contract. In general, credit insurance or a policy will complete the file. According to the terms of the contract, the factor takes charge of all or part of the invoices and will take care of the debt collection.

Termination of the factoring contract

If for any reason, the company wishes to terminate the factoring contract, it must inform the factor by registered letter, with acknowledgment of receipt. She is also obliged to respect a 3 month notice. In some cases, the expiry date of the factoring contract is set in advance by the factor. The termination process is the same since the company will have to send a contract termination letter within three months of the deadline. Obviously, she will then have to consider another financing solution in order to make her cash flow profitable.

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